February 11, 2008

August 18, 2008

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The marketing material for the Sedona Woods community in Fishers boasts that once word gets out, home lots are sure to sell out quickly.

In hindsight, the statement couldn't have been further off the mark. Roughly four years later, the subdivision that ultimately was to contain hundreds of homes built by Davis Homes LLC remains unfinished. And now, after the local builder ceased operations in late July, completion could take even longer.

Sedona Woods at Promise Road and 136th Street is but one example of the many new planned communities across the country that are casualties of the nationwide housing slump. Some of the projects abandoned by bankrupt builders and developers sit half-empty with undeveloped lots and vacant homes outnumbering residents.

"If the slowdown hadn't hit, we'd be out of there," acknowledged Corby Thompson, owner of Boomerang Development LLC, the developer of Sedona Woods.

As of July, the percentage of vacant housing inventory available for sale or rent stood at 4.8 percent nationally, the highest figure in at least 33 years, according to Zelman & Associates, a real-estate research firm in New York.

In addition, more than 30 large national residential builders have gone out of business since the start of 2007, with more expected to follow.

In the metropolitan area, no community or builder is immune. Even upper-scale projects such as Cass Estates in west Carmel, where homes start at $400,000, have burned through builders that either folded or left the Indianapolis market.

"If you go north, south, east or west, there are subdivisions with supplies," said Jim Litten, president of residential real estate for locally based F.C. Tucker Co. Inc., the area's largest real estate agency.

The ramifications for residents can be severe. Declining home values, unenforceable warranties, unkempt common areas and mismatched designs are among the worst fears.

Sedona Woods resident John Aylward, an air traffic controller at Indianapolis International Airport, worries most about the ultimate builder that will finish the community. The roughly 300-lot development is about two-thirds finished.

Thompson, a Fishers resident who has invested millions in the community, assures residents that won't happen. He expects another builder will be on site within 45 days.

Yet, local real estate agent Laura Musall hears similar concerns from new homeowners throughout the Indianapolis area.

"If all of the amenities haven't been put in ... and you thought there was going to be a pool," she said, "you begin wondering, 'OK, is this going to be happening now?'"

Slippery slope

The 23-year-old Davis Homes shut its doors July 23, a victim of low demand and lower prices that made it tough to build at a profit, CEO Brad Davis said. It avoided foreclosure on millions of dollars in loans by turning over its lots to lenders. Locally based Salin Bank & Trust Co. recouped a $3.1 million loan by taking back 77 single-family lots in Marion, Hancock, Hendricks and Johnson counties.

By helping the banks market the properties to other builders, Davis is hopeful communities will avoid becoming overrun by weed-choked lots. Other unfinished subdivisions aren't so lucky; it often can take six months to a year to find another builder, particularly in slow times like this.

Management of a new community is the responsibility of the developer, typically until at least 75 percent of the lots are sold. At that time, operations are turned over to the residents, who elect a board or hire a management company to oversee collection of association dues and maintenance, among other duties.

Subdivisions that are three-fourths finished may be collecting enough revenue to tide them over until another builder takes over, experts said. But the issue becomes more difficult for those that haven't reached the threshold.

"Until a lending institution or developer gets a hold of it, it's a limbo period," Davis said. "That's what we really worked hard to try to avoid, fortunately."

Westport Homes Inc. will finish Davis' Oriole Point and Lexington Woods, across the street from each other in Avon, and also will finish Brighton Knoll in Noblesville. An individual investor bought Jefferson Park in Pittsboro.

Homeowners who bought Davis models during the past 10 years are protected by warranties supplemented by insurance policies Davis purchased.

Yet, residents of any unfinished community may have trouble maintaining their home values, particularly those selling before the neighborhoods are completed, Litten said.

"If you're maintaining your lot like a golf course and you have six lots across from you with weeds knee-high, he said, "I can't imagine you wouldn't be frustrated."

Patience recommended

At a time like this, though, real estate experts preach patience. In many instances, they say, communities ultimately will resemble what planners had envisioned.

Paul Shoopman owned locally based Dura Builders for years before Los Ange- les-based KB Home Inc. bought it and entered the local market four years ago. But KB left in 2007, and Shoopman, in an unusual twist of fate, bought some of its communities after forming Shoopman Custom Homes. One of those is Cass Estates.

Of the 68 lots, 17 have been built or sold, including 10 Shoopman built. Quickly finishing a community in which the homes range from $400,000 to $600,000 is impractical, said Shoopman, especially when it takes a month to build just one house.

What owners of new homes need to take into account is, regardless of whether they have one empty lot next to them or several, he said, the housing market will rebound.

Shoopman said current conditions pale in comparison to what occurred in the early 1980s, when 30-year fixed mortgage interest rates hovered around 20 percent.

"Compared to that environment," he said, "this is a piece of cake."

Still, the local market is on pace to add just 4,500 new homes this year-a 60-percent drop from the annual average a few years ago.

Shoopman hopes to grow his current company to the size of Dura, which was one of the largest builders in the area. Davis, in the meantime, wants to build semi-custom and custom homes, once the market improves. He thinks that could be at least two years away, which gives the market more time to prey on home builders.

Speaking as a potential new home buyer, Musall the real estate agent said, "If I buy in this neighborhood, what's going to happen in a year? There's a lot of uncertainty."

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